AEP says its Public Service Co. of Oklahoma and Southwestern Electric Power utility subsidiaries will seek the necessary approvals from Arkansas, Louisiana, Oklahoma and Texas to buy the 2K MW Wind Catcher farm from privately-held developer Invenergy.
AEP says the wind farm, currently under construction, will be the largest single-site wind project in the U.S. when complete; the plant is scheduled to go into service in mid-2020
Utilities stocks (XLU +0.8%) may have exhausted their positive momentum, Goldman Sachs says as it downgrades the sector to Cautious from Neutral and says valuation is becoming a concern.
Absolute P/E ratios in the utility sector are back at peak cyclical levels and relative valuation metrics compared to the rest of the S&P 500 are also near peak levels but earnings growth appears relatively typical, the firm says.
Among specific stocks, Goldman downgrades both Ameren (AEE +1%) and WEC Energy (WEC +0.4%) to Sell from Neutral, primarily about the companies’ ability to meet earnings expectations especially in 2019, and American Electric Power (AEP +0.6%) to Neutral from Buy.
But Goldman upgrades Duke Energy (DUK +1%) to Buy from Neutral with an $85 price target, citing DUK's relative valuations plus strategic actions that have shifted the company toward a stable regulatory infrastructure business as rate case filings and continued O&M cost management should ease North Caroline regulatory woes; the firm also upgrades PPL Corp. (PPL +1.3%) to Hold from Sell.
In addition to DUK, Goldman has Buy ratings on FirstEnergy (FE +4.1%), Public Service Enterprise (PEG +1.4%) and PG&E (PCG +0.2%).
Even as the stock market grinds higher, shares of utilities companies (XLU +0.8%) have been leading the S&P 500 of late, climbing 3.2% over the past week vs. a 1% gain for the S&P.
The sector underperformed early in the year, but it is now up 9.9% YTD compared to the broader index’s 7.9% gain.
It’s not necessarily good news, as some analysts say the gains in part reflect scaled-back expectations for U.S. economic growth.
But others say the recent gains in utilities could be fleeting; “Overall, the economy’s momentum is firm, and the hype around the latest Washington news will dissipate gradually,” says Alan Gayle, director of asset allocation at RidgeWorth Investments.
In yesterday’s trade, the biggest utility stocks all rose: PCG +1.6%, NEE +1.1%, EIX +0.9%, AEP +0.8%, D +0.8%, PPL +0.8%, SRE +0.7%, EXC +0.6%, DUK +0.5%, SO +0.2%.
The utilities sector (XLU +0.6%) is one of the few groups trading in the green today, as part of a defensive-oriented trade amid the broader market selloff.
Barclays analyst Blerina Uruci sounds slightly bullish, noting that a return to more seasonally normal temperatures occurred in March, leading to a 8.2% rebound in utilities production on the month, and expecting a "more modest increase in April as a return to the normal run rate."
Instinet technical analyst Frank Cappelleri said earlier that if the S&P 500 hits below 2,380 and the XLU breaks out simultaneously, it could mean that "the environment is indeed changing" - at last check, the S&P was at ~2,366.
Among 10 major U.S. utility stocks: EXC +1%, DUK +0.9%, SO +0.8%, PPL +0.8%, AEP +0.7%, NEE +0.7%, D +0.7%, SRE +0.3%, PCG -0.1%, EIX -0.3%.
It's not that automakers and companies producing oil, gas and coal suddenly want more regulations, but they want to ensure changes endure through leadership changes in D.C. and legal fights amid environmental opposition, Harder writes.
According to the report, industry wants the EPA to keep intact but modify a methane rule affecting new wells across the U.S.; redo a review of Obama-era vehicle fuel efficiency standards but without throwing out the standards altogether; no repeal of a rule issued last year in response to the 2010 BP oil spill; and some type of EPA rule cutting carbon emissions despite near universal opposition to Obama's rule cutting power-plant carbon emissions.
Pres. Trump can try to end "the war on coal" all it wants, but "it cannot halt the march of time," says Reuters' John Kemp, who says that the administration's four or eight-year time span is too short to have much impact on capacity planning for coal-fired power plants.
Executives at the largest U.S. electric utilities say Trump’s announcement and the eventual fate of Clean Power Plan regulations make little difference, and they still plan to retire coal plants and have no interest in building new ones.
“In terms of how we’ve been transitioning our fleet and transmission, it probably won’t have a big impact,” says John McManus, a VP at American Electric Power (NYSE:AEP), where 47% of its electricity is coal-fired vs. 71% in 2005.
Over the next three years, AEP also plans to invest ~$1B in new wind and solar generation and $3B in new transmission lines to move that electricity.
Southern Co. (NYSE:SO) VP Jeff Burleson says Trump's near-term planning "doesn’t affect our long-term planning for future generation,” which does not envision coal as economically viable in its 50-year planning horizon.
The utilities sector (NYSEARCA:XLU) was a rose blooming among today's broader market trash, as U.S. interest rates fell and investor sentiment turned to safer havens.
“While we expect gradually rising interest rates to correspond directionally to higher long-term yields, we see this playing out over several quarters and believe fluctuations will continue to create trading opportunities for interest rate-sensitive utilities and IPPs," CIBC analyst Robert Catellier writes.
American Electric Power (AEP +1.5%) and Dynegy (DYN +0.6%) are higher after agreeing to swap ownership of a pair of co-owned Ohio power plants, in another indicator of a rapidly changing Ohio electric market.
AEP will sell its 25.4% stake (330 MW) of the Zimmer power station to DYN while acquiring DYN's 40% ownership (312 MW) in the Conesville power station; AEP will continue to operate the Conesville plant and DYN will continue to operate the Zimmer plant.
In its Q4 earnings report, DYN says its one-third owned Killen power plant will retire in mid-2018, and the Stuart plant also could be retired; if both are retired, 2,900 MW of coal-based power would be removed from Ohio.
Utilities shares are on track for their best week since September, as investors speculate that Pres. Trump's planned infrastructure program may take much longer than expected.
The upward momentum has come as the “outlook for U.S. fiscal stimulus has diminished,” says Dennis DeBusschere, head of portfolio strategy at Evercore ISI. “The S&P continues to rise, but the change in market leadership suggests investors’ growth expectations have weakened."
The utilities sector was the S&P's second-best performer leading up to the Nov. 8 election as the Fed held back on interest rate increases, but utilities have since climbed only 3.8% vs. a 10.1% gain for the S&P as investors have bet that Trump’s planned infrastructure spending and corporate tax rate cuts would stoke higher levels of inflation.